Bill Healy, partner at Silver Spike Capital (an investment manager dedicated to private credit and equity opportunities in the cannabis industry, and a sponsor of a $250M NASDAQ-listed SPAC), described burgeoning opportunities in the North American cannabis market, lifted by meaningful secular trends. Many cannabis businesses have thrived through the economic crisis associated with the COVID-19 pandemic and as they have continued to grow, generate revenue, employ people, and benefit communities and governments (receiving tax receipts).
Cannabis, once considered a vice and still federally categorized as an illegal drug, is broadly accepted across geographies and demographics as a beneficial substance with promise as a part of medicinal and wellness offerings. This was evident by the local and state government "essential service" designations in all of the adult-use legal states and the District of Columbia.
The first panel, discussing the cannabis industry amid a global pandemic included: Chapman Ducote, CEO of Silver Peak Holdings, a fully integrated cannabis grower and chain of retail outlets including an Aspen flagship luxury cannabis boutique; Eric Lindberg, who manages the Knowlton Foundation’s investments, including holdings in cannabis, Eddy van der Paart, who manages a family office with cannabis holdings and JD Wechsler at the Pakalolo Fund, where he invests in cannabis via public markets.
Ducote described in first-hand detail the experience of choosing to do business as a vertically integrated operator in a single state and manage a retail experience that meets the needs of urban, suburban and luxury consumers, all while meeting ambitious growth targets amid a global economic crisis and pandemic. He gave an up-close perspective of a mature, cash-flowing business in an industry that is still stigmatized, fragmented and often poorly managed.
Weschler gave his perspective on public markets involving legal cannabis and its supply chain, including his fund’s extensive coverage of companies dealing with both cannabis and hemp, and their active ingredients, THC and CBD. Wechsler portrayed the recent declines in cannabis-related equities as a “healthy bottoming process,” involving cash crunches for companies, alongside flourishing real estate investment trusts as those companies search for cash, while numerous exchange-traded funds launched, only to see steep losses. His objective is to focus on mature companies in an emerging sector as he endeavors to keep the amount of risk his fund is exposed to -- in this volatile sector -- to a minimum.
Lindberg offered resounding enthusiasm for the developing cannabis space, calling it “the greatest area of equity value creation that any of us investing in the consumer space are likely to see in our lifetimes.” He foresees a wave of legalization and professionalization of the industry transforming the sector into an investing mainstay, a peer of technology or real estate, which each also had profound crises and recovered strongly.
Two areas where Lindberg is cautious are management inexperience and lack of professionalism and the outdated retail experience still found broadly in the industry. Lindberg has found companies trying to do business with professional capital management companies while maintaining casual and imprecise business practices. Meanwhile, he sees an inconsistent retail offering, with environments anchored to an outdated cultural idiom, ill prepared to serve the enormous market of consumers interested in consuming legal cannabis products.
Van der Paardt, a native of the Netherlands with long experience in “the good leaf,” focuses on the U.S. market for its size and development, compared to a small and underdeveloped market in Europe that holds more risk than he is interested in.
A second panel, focused on hemp, featured Brian Sheng, CEO of Asia Horizon, an operating and investment company focused on Asia's emerging hemp-derived cannabinoid industry; Vlad Kapustin, Chief Legal Officer of Root Origins, a start-up hemp-extract and bulk hemp wholesale company that is developing, licensing and commercializing industrial hemp, including full spectrum CBD products, and Toren Kutnick, who invests in enabling technologies and services in the space, from software to testing and extraction and supports research into CBD at the UCLA Cannabis Institute.
Kapustin is reckoning with uncertainty heading into the next hemp growing season by focusing on infrastructure and technology that can aid the sector in focus it needs to develop on business integrity, ethics and regulatory compliance as well as operational efficiencies and production quality.
The market volatility of the last two years has delivered painful losses to many hemp farmers, both in their bank accounts and in their fields, in part due to inadequate access to drying and storage capacity and other infrastructure, shortfalls he works with companies to remedy. “We’re trying to address pain points where farmers had a painful loss,” Kapustin said.
